Biostar Pharma Plans to Grow Its Own Raw Materials

| About: Biostar Pharmaceutic (BSPM)

Biostar Pharmaceuticals, Inc. (NASDAQ:BSPM) paid almost $3 million (20 million RMB) to purchase 8.6 acres of land on which it will build a raw material processing facility. Biostar plans to spend another $2.3 million (16 million RMB) to construct the plant, which will comprise about 6,000 square meters.

The land is located in Xi'an, thirty-five kilometers from Biostar’s operating facility in Xian Yang, China, and only 5 kilometers from 80 acres of farmland that Biostar leased last fall. The company said the farmland will be used to grow herbs and plants that Biostar uses in its pharmaceutical products.

Biostar has hired 60 farmers to produce its herbs and plants. Initially, the company expects to use about 25% of the production in its own facility and sell the rest. The processing plant will eventually employ another 50 workers. Biostar said that having its own plant production operation will shield the company from increases in raw material costs, which negatively affected profits during the middle of 2008.

Biostar is incorporated in Maryland, USA, but its operations are entirely in China, carried out by a wholly-owned subsidiary, Shaanxi Biostar Biotech Ltd., and a variable interest entity, Shaanxi Aoxing Pharmaceutical Co., Ltd. Aoxing is currently marketing five approved drugs, and an additional nine drugs are in development.

Aoxing Pharma’s best selling product, Xin Aoxing Oleanolic Acid Capsule, is an OTC drug that treats hepatitis B. It is the only OTC oral hepatitis treatment product approved by the SFDA. In the first nine months of 2008, it produced $12.7 million in revenue for Biostar, about 52% of the company’s total sales.

The company seems to have produced a small profit on its $23.7 million of revenues during the first nine months of 2008, as long as no write-down is recorded for its accounts receivable of $10.8 million, a number that doubled over the nine-month period. Biostar began trading on the Bulletin Board Exchange in December 2008.

Biostar currently markets the following products:

  • Xin AoXing Oleanolic Acid Capsule: an OTC drug that treats chronic hepatitis B disease.
  • Compound Paracetamol & Amantadine Hydrochloride Capsule: an OTC drug that treats common cold.
  • Danshen Granule: a prescription drug treating coronary heart disease, myocarditis and angina pectoris.
  • Pediatrics Medicine: a prescription drug used for treating children's cough and respiratory tract infection.
  • Tianqi Dysmenorrhea: an OTC traditional Chinese medicine for treating dysmenorrhea.

Disclosure: none.